US dollar ends strongest year since 2015 on defensive note

By Saqib Iqbal Ahmed

Updated 01 Jan 2019 — 11:55 AM, first published at 7:14 AM

New York | The US dollar fell against the yen and euro in thin year-end trading on Monday as optimism about progress in the US-China trade dispute hurt its safe-haven allure, but the greenback stayed on track to log its strongest annual performance in three years.

The dollar index, which tracks the US dollar against six peers, was down 0.22 per cent on Monday (New York time).

"The US dollar is heading into the end of the calendar year on the defensive as global stocks - bearing in mind that some markets are done for the year already - perk up following positive comments on US-China trade from President Trump," Shaun Osborne, chief FX strategist at Scotiabank in Toronto, said in a note.

For the year, the index was up 4.4 per cent, its best yearly percentage gain since 2015. Bloomberg

Equities around the world rose on Monday as hints of progress on the Sino-US trade standoff provided optimism after a punishing end of year for markets globally.

Risk sentiment brightened slightly when US President Donald Trump said he had held a "very good call" with China's President Xi Jinping on Saturday to discuss trade and claimed "big progress" was being made.

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'Still awaiting concrete details'

The two nations engaged in a trade war for much of 2018, shaking world financial markets as punitive tariffs disrupted the flow of hundreds of billions of dollars worth of goods between the world's two largest economies.

The yen - which tends to benefit during geopolitical or financial stress as Japan is the world's biggest creditor nation - remained in demand and the US dollar hit a fresh six-month low against the Japanese currency.

"We've heard this all before and are still awaiting concrete details, of course," Mr Osborne said.

The persistent tensions boosted safe-haven demand for the greenback as investors bet the US was in better shape than its rivals to weather a trade war.

For the year, the index was up 4.4 per cent, its best yearly percentage gain since 2015.

Although the US dollar has been relatively stable going into the end of 2018, expensive valuation, a flagging equity boom, waning cash repatriation by US companies, and the possibility the US Federal Reserve will not raise interest rates as many times as previously signalled, all pose a challenge for the greenback.

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Overall falls for currencies

"We still rather think the US dollar may be peaking after spending much of the past year on the offence," Mr Osborne said.

On Monday, the euro was 0.08 per cent higher against the US dollar. Although the single currency has gained against the dollar in recent weeks, economic growth and inflation in Europe remain much weaker than the European Central Bank's expectations.

The US dollar spot index in 2018. Bloomberg

The euro is set to have lost almost 5 per cent against the dollar in 2018.

Sterling, which has been battered by Brexit woes, rose 0.31 per cent to a three-week high. The British pound has lost about 6 per cent of its value versus the dollar on the year.

The Australian dollar lost 9.8 per cent of its value against the greenback in 2018.